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Carbon Reduction Commitment ‘stealth tax’ puts UK data centre industry in doubt

UK - Oct 26, 2010 (PRN): DatacenterDynamics’ London event to highlight key industry concerns as one of UK’s largest, but most silent, carbon emitters struggles to predict its carbon future.

It is less public facing than the hospital and public sectors, and uses less energy than the exempt transport sector – at 6,000MWh/yr -- but when it comes to business and carbon emissions, the data centre industry has received little mention, despite being one of the most affected by recent changes to the UK’s Carbon Reduction Commitment (CRC).

The announcement by the UK government last week that rebates would be turned into a fee could put the UK data centre industry at risk, according to some data centre specialists who spoke with our DatacenterDynamics London conference organisers.

The industry has since warned rising energy prices without incentives could send data centre business offshore, where nuclear and renewable power is readily available, and change the face of the industry as we know it.

The UK Government said it was scrapping plans to offer rebates to companies found to hit the top of a league list created under its original plans to highlight businesses that had made large moves towards efficiency.

Instead, the government said it will hold on to the £1bn worth of funds expected to be raised in 2014 and 2015 as part of what is now being called a ‘stealth tax’ by the industry.

Data centre operators will now face a direct tax on energy consumption at £10 to £15 per tonne of CO2 allowances and 1 tonne of CO2 equating to roughly 500kWh of grid electricity (which will raise the price of energy by about 10%), according to reports.

Britain’s data centres produce 2% of the total amount of greenhouse gas emitted in the UK each year – the UK Government’s Carbon Reduction Commitment (CRC) scheme affects those industries which make up 10% of overall emissions.

UK-based Romonet, which researches energy and cost points within the data centre, told DatacenterDynamics London, which will soon host its annual conference, that the changes could have wide implications for the data centre industry.

Romonet CTO Liam Newcombe said the large collocation and hosting data centre operators would be most affected, having to find a possible additional £500,000 in OPEX costs.“The change in the recycling payments will clearly have a substantial impact on the UK data centre sector,” Newcombe said.

“No longer is CRC simply a complex regulatory burden that will cost a lot of money in compliance and reporting. It is now and expensive tax as well. A medium-sized collocation data centre can expect to add £500,000 to its annual OPEX for the purchase of allowances in addition to the compliance costs.”

For some operators, this could be enough to halt new projects in the UK, and for some businesses, it could lead to a drop off in business, as clients investigate offshore options offering lower energy costs.

“This change to CRC will, in combination with the already high cost of electricity in the UK, cause some operators to build new facilities in other countries instead. This is likely to be particularly true for outsourcers and cloud (computing) providers who are able to deliver services from remote data centres with little overhead,” Newcombe said.

“Instead of leading the development and delivery of new technologies and services that generate service and IP exports, this displacement drives the UK towards being a consumer and importer of such new developments.”

Data centre development company Lockerbie Data Centres is currently working on a 272,000 sq m data centre north of Lockerbie, Scotland, which it says will follow world-class sustainable practices which will incorporate energy-efficient technologies.

Lockerbie Data Centre’s project director David King said he expects the data centre environment will be unsettled for some time following the UK Government’s announcement, but the changes to the CRC could actually be positive for collocation providers.

“It could take a year or more before the data centre industry really knows what it is dealing with in regards to the CRC. One thing we do know is that end users will not be investing in great numbers at this time. The CRC is a cost at the end of the day,” King said.

Further, King notes “I think that UK businesses may be driven now to outsource from the enterprise data centre into a collocation operation or into the wholesale market as they will be forced to go with larger data centres that can be twice as efficient due to scale. Some people, however, will be put off investing in the UK until they fully assess what the financial picture is."

The UK is not immune to criticism regarding energy policy and provision. Last year, representatives from Digital Britain told DatacenterDynamics that data centres in the country already struggled when it came to acquiring physical connections and installing cables, switches and transformers to the regional grid. A Digital Britain report also showed that data centres had issues accessing distribution and generation capacity across the grid. The report said that the South East of England and London – the UK’s financial hub which houses data centre reliant on low-latency connections for financial trading – pose particular challenges that jeopardize the UK’s standing against the world’s more accessible data centre markets.

According to Thomson Reuters Global Head of Energy & Sustainable Technology, Content, Technology & Operations Harkeeret Singh, who will be speaking at DatacenterDynamic’s London On November 9th, the uncertainty surrounding last week’s announcement could be enough to cause a blow for the industry.

“The initial cost and the uncertainty are not a good mix for those considering placing data centres in the UK, especially if another country is a bit more stable in its energy and tax options,” Singh said.

Committee on Climate Change Chief Economist Adrian Gault told DatacenterDynamics London that although they had no warning of last week’s announcement, the recent tax announcement was not altogether unexpected, given the recent UK budget cuts aimed at reducing the UK’s deficit.

He said energy incentives for large users of energy, such as data centres, could be required in future. As for the league table, Gault said he expects this to stay, if not for financial incentive then for marketing benefits. Uncertainty, however, is likely to remain in all industries that deal with the CRC for at least a year ahead. “The levels of payment and the way this is operated will be left for the budget next year I think,” Gault said.

“We have suggested, however, that we think it would be desirable to move towards a flat rate of payment rather than an auction to reduce the complexity, but we have not had a response from the government on this yet.”

DatacenterDynamics London will bring together industry leaders to discuss the future of CRC and how this will affect the UK data centre industry on 9th/10th November at the Lancaster London Hotel, Lancaster Terrace, W2.




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